-- RBC Capital Markets said an on-consensus March employment report in an otherwise quiet week on the domestic calendar has helped Government of Canada yields finish the week close to where they ended last week, despite the continued uncertainty in the Middle East.
With little on the data calendar next week and this morning's US/CA data unlikely to move the needle for both the Fed and Bank of Canada, USD/CAD's near-term direction is likely to be a function of whether markets are pricing an escalation (USD-higher) or a de-escalation (USD-lower), RBC said in its CAD Weekly Soundbites on Friday.
Rates View
On the BoC, RBC said the central bank has been clear that the starting point matters for responding to the recent oil price spikes and knock-on impacts due to the Iran conflict. In particular, core inflation trending to target and excess slack in the Canadian economy afford the BoC some time to assess any potential second-order impacts.
The recent rise in wage growth looks more due to compositional changes and should be looked through by the BoC, RBC said, adding it continues to see no change from the BoC in 2026 and hikes starting in 2027.
On spreads, RBC said despite continued volatility, CA/US spreads continue to move sideways over the medium-term, with the 10-year marginally more negative on the week at -86bp.
From a technical perspective, George Davis at RBC said the uptrend in CA 10-year yields came to an end on March 31 via a bullish trend reversal below 3.50%. This favours a move toward 3.36% initially, with additional resistance coming in at 3.25%. Initial support is located at 3.53%, with a return above 3.62% required to trigger a new bearish phase.
Key Things To Watch
In Canada, RBC said Monday sees three federal byelections, including two in traditional Liberal strongholds in Toronto. Ahead of these, the latest floor-crosser from the Conservatives to the governing Liberals give the latter a 171-169 parliamentary advantage, meaning two wins will give them a clear, though slight, majority.
RBC said there is a plethora of second-tier data next week as well, including February manufacturing sales on Wednesday, February wholesale trade on Wednesday, March existing home sales on Thursday and March housing starts on Friday.
Globally, RBC said focus is on headlines related to the Iran conflict. Data wise, there will be March PPI in the US on Tuesday, March employment in Australia on Wednesday, Q1 GDP and March economic activity indicators in China on Wednesday, and February monthly GDP in the UK on Thursday.